Beware the Carbon Tax

In his first energy speech of his second term, “President Barack Obama tried to move past partisan fights over energy policy on Friday with a modest proposal to fund research into cars that run on anything but gasoline.” The “modest proposal” is what he introduced in the State of the Union Address: an Energy Security Trust (EST)—which is a central part of his economic strategy.

The idea for an EST was developed by a collaboration of high-volume oil consumers and military leaders concerned about US energy security—put forth through a report titled “A National Strategy for Energy Security: Harnessing American Resources and Innovation.” The unique backgrounds of the advocates garnered attention from both sides of the aisle. However, a key component of the Trust was omitted from the President’s Friday speech: increased domestic energy development—the piece that, according to one of the idea’s developers, was designed to win bipartisan support and “keep both sides engaged.”

In response to Obama’s presentation of an EST—which would set aside royalties from oil and gas extracted on federal lands and direct them toward research and development for transportation technologies that reduce our dependence on oil—House Speaker John Boehner’s office says: “For this proposal to even be plausible, oil and gas leasing on federal land would need to increase dramatically. Unfortunately, this administration has consistently slowed, delayed and blocked American energy production.”

Once again, Obama’s speech touted America’s growing “energy future:” “We produce more oil than we have in 15 years. We import less oil than we have in 20 years. …We're producing more natural gas than we ever have before.” This is true, however Boehner is correct. A new report from the Congressional Research Service “confirms what many have known to be true.” Marc Humphries, the government specialist in energy policy who authored the “U.S. Crude Oil and Natural Gas Production in Federal and Non-Federal Areas” report, says: “All of the increase (in oil and natural gas production) from FY2007 to FY2012 took place on non-federal lands, and the federal share of total U.S. crude oil production fell by about seven percentage points. … In general, the regulatory framework for developing resources on federal lands will likely remain more involved and time-consuming than that on private land.”

Increasing resource development on federal lands is one of the key features of the EST. In fact, the idea is that the funds set aside for the trust would come solely from new development. Yet, Friday’s speech never mentioned that—despite media reports stating: “the new program…would be paid for through royalties generated by offshore drilling of oil and gas development of the outer continental shelf.”

I had a post-speech conversation with Sam Ori, Director of Policy for Securing America’s Future Energy (SAFE)—the organization responsible for the Energy Security Leadership Council (about which Obama spoke) and the idea for the EST. While SAFE is pleased that itsr policy proposal has been picked up by the Administration, Ori wouldn’t comment on the President’s cherry-picking approach to the plan. He did, however, say: “The speech is not the final place. If the EST doesn’t offer new oil and gas development on federal lands, the Republicans won’t sign on.” Ori emphasized that in order for the EST to be a success, it needs to have something that is “attractive to both sides.” The alternative energy research is the carrot for the left and the increased drilling is there for the Republicans. Ori also pointed out—as did Robbie Diamond, Founder, President and CEO of SAFE, during our December conversation—that the EST is for research and development of technologies that will lesson our dependence on oil, not deployment of said technologies.

Somehow, in a time when deficits and government spending are front-page news stories, Obama wants to “divert” revenues already coming into the US treasury into “a dedicated slush fund for alternative energy.” In Friday’s speech, he pointed to SAFE’s proposal when he said: “let's take some of our oil and gas revenues from public lands and put it towards research that will benefit the public so we can support American ingenuity without adding a dime to our deficit.”

Senator Lisa Murkowski disagrees. Robert Dillon, spokesperson for the Senator told me: “The president hit on a good idea when he called for a trust fund to promote energy innovation. But unlike Sen. Murkowski’s proposal, he would not enable new energy production to pay for it. The president says he wants to divert a share of the royalties from offshore production that has already been factored into the budget, which could mean either deficit spending or less funding for the Land and Water Conservation Fund. More likely, the president’s real plan is to raise taxes on oil and gas. There’s a better way that not only funds investment in research, but also addresses our need for affordable and abundant energy. It’s Sen. Murkowski’s plan. We hope the president will embrace it.”

Forbes writer, Christopher Helman, takes it one step further. He believes that “this Energy Security Trust could well serve as the tip of a wedge that could some day lever open a new carbon tax.” In fact, according to Helman, Connecticut Congressman John Larson, said “that the very purpose of the Energy Security Trust fund was to serve as a conduit for the collection of carbon taxes.”

If Obama was truly “seeking to build some common groundon energy,” he should have included both sides of the equation; incorporating both increased drilling and R & D “investment.” Instead, in his “first energy speech of his second term,” he continued to put partisan considerations before the national interest.

The speech included some populist themes:

· “Our top priority as a nation” should be “reigniting the true engine of America’s economic growth.”

· “Few areas hold more economic promise for creating good jobs and growing our economy than how we use American energy.”

· “What most Americans feel first when it comes to energy prices—or energy issues are prices that they pay at the pump.” And,

· “We’ve worked with the auto companies to put in place the toughest fuel economy standards in history.”

Yet, he omitted any solutions that would help American’s today. The only mention of a pipeline was this: “as long as the pipeline for research is maintained…” No mention was made of the “good jobs” that could be created if he’d quickly approve the Keystone pipeline—something Dave Mallino of the Laborers’ International Union specifically chastised him about on the air with Neil Cavuto.

Regarding fuel economy standards, as we’ve seen with cellulosic ethanol, just because government mandates it, doesn’t make it so.

Friday’s speech didn’t address expanded access to America’s natural resources. It did, however, threaten that the “so-called sequester” would cut into the “muscle and the bone.” Obama claimed that “because of this sequester, we’re looking at two years where we don’t start new research.”

The speech, which was reportedlyabout freeing “our families and business from the painful spikes in gas prices,” did suggest “more solar power, more wind power”—neither of which do anything to touch “spikes in gas prices.”

SAFE’s EST, which aims to bring both sides together for “energy security,” is admirable, and Ori hopes “that we can be successful.” If shuttling some of the funds from new development—that the government already collects (not a new tax)—toward R & D will cause this administration to finally “stop being an obstacle,” I am all for it. However, I hate that we have to bribe them to do what they should have been doing all along. If this “first energy speech” is any indication, I can’t say I share Ori’s optimism.

I have to agree with Helman. He says we already have an EST. “It’s this: the hard work and innovation of the tens of thousands of engineers at American oil companies who have unlocked a plentiful supply of energy that will keep the nation moving and growing for decades. And all without taxpayer handouts.”